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Active managment – Going beyond the index

The debate over the merits of active and passive investing has been going on for some time. Ivy believes investors can derive the most long-term benefit through exposure to well-researched actively managed funds.

Market Perspectives/ 05.08.20

Looking beyond stock market volatility

Market volatility can be unsettling, but history shows that prices have returned to less volatile patterns over time. That can be good news for long-term investors.

Market trends show long-term investors generally have been rewarded over time. However, periods of extreme volatility can challenge even the most seasoned investors. Ivy believes having a perspective of the markets and the factors affecting them can be helpful in assessing current opportunities.

Navigating the Psychological Toll of COVID-19

Discover practice tips to helping support your clients during the pandemic.

Genlink

A succession plan for the next generation

You’ve spent your career teaching clients the importance of retirement planning and how to protect their assets. But have you considered what will happen to your business when it comes time for you to pass it to the next generation of advisors?

Genlink

Generational happiness

From loyalty to impact and autonomy to experiences discover how each generation defines happiness.

Ivy Investments

We stand for a legacy of expertise, focused on delivering strong, long-term results. Our name reflects our progressive product offerings and growing global presence as we continue to adapt to the needs of investors.

Market Sector Update

The quarter began on a positive note. Global equity markets started the period with strong levels of global liquidity,
accommodative central banks, stable global economic growth and a recent phase 1 trade agreement between the U.S.
and China. However, the environment quickly evolved as COVID-19 began spreading aggressively in Hubei Province,
China and eventually around the globe. China’s equity markets bore the initial brunt of stock market pressure. By
February, the virus had begun spreading to other parts of Asia, Europe and the U.S. Chinese stock markets calmed
while European and U.S. markets fell substantially. As China aggressively quarantined patients and shut down travel to
and from Hubei Province, the health crisis stabilized in China but was worsening around the rest of the world. Between
January and March 23, the U.S. stock market (more than half of the global benchmark allocation weighting) was down
30% before staging a strong rally on aggressive monetary policy. At quarter end, much of the world was practicing
some form of social distancing. Some businesses have closed with local economies functioning at a fraction of their
capacity prior to the health crisis. China, facing the health crisis first, is furthest along in reopening their economy. In
most parts of China, individuals have returned to their workplace and restaurants and shops have reopened.

The impact of social distancing on the global economy has been profound. Unemployment is skyrocketing at a pace
not seen in the past. The U.S. has 22 million unemployed, wiping out nearly a decade of job gains in weeks. Global
gross domestic product (GDP) will be dramatically cut as the global economy shrinks rapidly and corporate earnings
are under continued pressure. Despite all of this, equity markets staged a sharp rally at the end of March. The key
driver of recent equity market strength is a result of aggressive, unprecedented global monetary stimulus put in place
to back stop credit assets, offset lost income for individuals, finance small businesses that are temporarily shuttered,
and reduce the potential for a negative, credit-driven tail risk.

Global equity markets were down 21% in the quarter. Growth outperformed value by a significant margin as investors’
preferred large cap, quality growth during this period of uncertainty. Energy was a huge underperformer, suffering the
largest percentage decline in oil prices on record on persistent demand weakness, lack of storage capacity and
continued political tensions among energy producers. Health care, consumer staples, information technology and
utilities outperformed the market. From a geographical standpoint, markets were broadly down across the globe. In
developed markets, Japan was the best performer, while the U.S. modestly outperformed and Europe modestly
underperformed the benchmark. Emerging markets also modestly underperformed, with outperformance in China
offset by weakness in other parts of emerging markets, including much of Latin America and India.

Portfolio Strategy

The Portfolio posted negative performance but outperformed its benchmark for the quarter. Stock selection was the
primary contributor to outperformance, with strength in consumer discretionary, communication services and
financials. The Portfolio's overweight allocation to information technology also benefited relative performance.

Industrials, specifically exposure to Airbus SE, was the largest detractor from performance for the period. As travel
reductions began to occur due to COVID-19, concerns regarding airplane deliveries mounted, adversely impacting
Airbus. We believe Airbus’ valuation reflects a strong amount of skepticism regarding suppressed air travel demand
and delays in aircraft deliveries and we continue to own shares.

Amazon.com, Inc., Microsoft Corp., Ferrari N.V. and Dollar General Corp. were notable outperformers during the
period. On the other hand, underperformers included Imperial Brands, Canadian Natural Resources Ltd., HCA
Holdings, Inc. and our lack of ownership in Apple Inc. (which performed well in the quarter).

Outlook

We are currently in an unprecedented environment. Social distancing and restrictions on activities implemented to
curb the spread of COVID-19 and to reduce the risk of hospital systems being overwhelmed is something we haven’t
experienced on a global scale. Businesses and services around the world are being temporarily closed, and human
behavior is changing in ways that may stay with us for some time. We are focused on what the world may look like
coming out of this pandemic, attempting to protect assets from unintended risks in the near term and focusing on
businesses that are well positioned as we recover.

In our perspective, the recent run up in equities, driving by unprecedented global stimulus, is disconnected from
the challenges we expect during the process of getting economies up and running again. We are expecting an 18-
month to two-year window before vaccines are readily available for the general population. Scaling production takes
time even under the best of circumstances. While first responders and high-risk individuals may receive vaccines
earlier, wide spread vaccination will take time. Until then, we are expecting modifications to daily life relative to a pre
COVID-19 environment across the globe. These should differ depending on geography, but will likely include fewer
large gatherings, less entertainment and travel and will have an impact on a wide range of issues, including consumer
spending, the way businesses operate, industrial production, the pace of return to full employment and the credit risks
associated with lower global economic output. Some of the changes we have made to the portfolio in-light of these
concerns include a focus on some of the highest quality companies with strong balance sheets and persistent demand.
We have sought to reduce the amount of risk in the portfolio by reducing our emerging market exposure, particularly
to Brazil. We believe China could be a bright spot in emerging markets. Its ability to quickly quarantine areas and
individuals with viral outbreaks as well as its extensive use of technology to monitor individuals’ exposure to patients
who test positive puts that country in a better position to potentially contain the virus until a vaccine is available.

Amazon remains one of our largest holdings, followed by Microsoft and Johnson & Johnson. In health care, we are
focused on medical device companies and large pharmaceutical firms that should be able to withstand a downturn and
also provide both diagnostic and therapeutic solutions to the current crisis. On the industrial front, we believe
automation is a long-term secular trend as companies across sectors are trying to diversify supply chains and minimize
geographic concentration. We think beneficiaries will include health care, industrial and technology companies that
can provide automation tools. We are also looking at new technology platforms that facilitate productivity in a world
with a desire for lower social interaction. Retail firms with online strength that may be taking share from brick and
mortar competitors and continued secular winners may have even more of a tailwind in the current environment. We
believe the current volatility and price dislocations represent an opportunity for stock pickers.

The opinions expressed are those of the Portfolio’s manager and are not meant as investment advice or to predict or project the future performance of any investment product. The opinions are current through March
31, 2020, are subject to change at any time based on market and other current conditions, and no forecasts can be guaranteed. This commentary is being provided as a general source of information and is not
intended as a recommendation to purchase, sell, or hold any specific security or to engage in any investment strategy. Investment decisions should always be made based on an investor’s specific objectives, financial
needs, risk tolerance and time horizon. Past performance is not a guarantee of future results.

The impact of COVID-19, and other infectious illness outbreaks that may arise in the future, could adversely affect the economies of many nations or the entire global economy, individual issuers and capital markets
in ways that cannot necessarily be foreseen. In addition, the impact of infectious illnesses in emerging market countries may be greater due to generally less established healthcare systems. Public health crises
caused by the COVID-19 outbreak may exacerbate other pre-existing political, social and economic risks in certain countries or globally. The duration of the COVID-19 outbreak and its effects cannot be determined
with certainty.

Risk factors: The value of the Portfolio's shares will change, and you could lose money on your investment. An investment in the Portfolio is not a bank deposit and is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. Prices of growth stocks may be more sensitive to changes in current or expected earnings than the prices of other stocks. Growth stocks may be more volatile
or not perform as well as value stocks or the stock market in general. International investing involves additional risks including currency fluctuations, political or economic conditions affecting the foreign country, and
differences in accounting standards and foreign regulations. These risks are magnified in emerging markets. The Portfolio typically holds a limited number of stocks (generally 45 to 50). As a result, the appreciation
or depreciation of any one security held by the Portfolio may have a greater impact on the Portfolio’s net asset value than it would if the Portfolio invested in a larger number of securities. These and other risks are
more fully described in the Portfolio's prospectus.

Annuities are long-term financial products designed for retirement purposes. Annuity and life insurance guarantees are based on the financial strength and claims-paying ability of the issuing insurance company. The
guarantees have no bearing on the performance of a variable investment option. Variable investment options are subject to market risk, including loss of principal. There are charges and expenses associated with
annuities and variable life insurance products, including mortality and expense risk charges, management fees, administrative fees, expenses for optional riders and deferred sales charges for early withdrawals.
Withdrawals before age 59 1/2 may be subject to a 10% IRS tax penalty and surrender charges may apply.

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Market Sector Update

Following the rally in December 2019, spreads on high-yield bonds continued to tighten during the first few weeks
of January amid a backdrop of consistently positive macroeconomic data, a signed Phase One U.S.-China trade
agreement, and a relatively strong start to fourth quarter earnings. Notably, like late last year, lower quality rating tiers
started the month by outperforming higher quality. However, the outbreak of COVID-19 towards the end of January
reversed this trend and put the reinvigorated global growth story on hold as investors grappled with the potential
implications.

Subsequently, the first few weeks of February saw investors shrug off concerns of a material economic impact caused
by the outbreak. However, the global spread of the virus towards the end of the month increased fears of a global
pandemic, leading to a market selloff and bringing 10-year U.S. Treasury yields to record lows.

The selloff continued in March as high-yield markets experienced unparalleled declines. The pace of spread widening
has been historic, faster than any other period on record, and spreads are trading at levels not seen since the 2008-
2009 Global Financial Crisis. Spread levels on the inde are now roughly 500 basis points (bps) wider relative to levels
at the end of January.

Markets continue to grapple with the unsettling effects of the novel coronavirus outbreak, with worries extending
from the risks to human health to the potential flow-on effects on economies and social systems. As a result of the
outbreak, governments across the globe imposed extreme containment measures and shut down non-essential
functions. Although COVID-19 may prove transient, the impact from fear-based actions on fundamentals can be severe
and this particular fear has caused a market panic.

Central banks have begun taking dramatic steps to combat the economic shocks caused by the outbreak, with
government-sponsored fiscal stimulus on its heels. The Federal Reserve (Fed) reduced rates 150 bps via two rate cuts
in March, bringing the federal funds target range to 0-0.25%, and rolled out additional initiatives to guarantee liquidity
to the primary and secondary investment grade credit markets. On top of the actions already taken, the Fed stated it
“will continue to use its full range of tools to support the flow of credit to households and businesses.” Fiscal stimulus
measures have also moved forward, with the U.S. passing a $2.2 trillion relief package, believed to be the largest in
U.S. history.

The 5- and 10-year Treasury rates traded 131 bps and 125 bps lower during the quarter, respectively. The optionadjusted
spread on the Bloomberg Barclays U.S. High Yield Index traded 544 bps wider during the quarter to end at
880 bps, with spreads reaching levels as wide as 1,100 bps during March. High-yield mutual funds and exchange-trade
funds reported outflows of $16.7 billion in the first quarter, with March outflows of $13.0 billion notching the second
largest monthly outflow on record. Gross new issue activity totaled $72.7 billion during the quarter – it was strong to
start the quarter, but with yields hitting a decade high, only five bonds priced for $4.2 billion during March. Additionally,
net issuance has been low so far this year as only $18.7 billion has priced ex-refinancing.

Portfolio Strategy

Across high yield from a rating standpoint, BB rated bonds returned -10.15%, while single-B rated bonds returned -
12.97% and CCC rated bonds returned -20.55%.

The Fund had a low double-digit negative return, but outperformed the Bloomberg Barclays U.S. Corporate High-
Yield Index. Sector selection was a major contributor to performance during the quarter, with security selection
detracting to a smaller degree.

From a sector selection standpoint, an underweight allocation to the energy sector and the cash position were the
largest contributors to performance, more than offsetting detractions from an underweight allocation to the consumer
non-cyclical sector and an overweight allocation to real estate investment trusts (REITs). From a security selection
standpoint, holdings in the technology and energy sectors were the largest detractors, while holdings among REITs,
communications and capital goods names contributed.

We remain relatively defensively positioned and underweight energy. Valuations are inexpensive in scenarios
excluding a deep and prolonged recession. Against this backdrop, we are looking for opportunities to add to our risk
exposure from our existing cash positions. As has been the case in prior cycles, we expect high-yield bonds to benefit
from a longer spread duration profile relative to other fixed income alternatives.

From a maturity standpoint, we have been underweight the front-end of the yield curve (1-4 year maturities and not
including our cash holdings), instead maintaining a preference for the belly of the yield curve (4-9 year maturities)
where we believe our credit selection expertise can drive outperformance as we are able to identify securities that
stand to benefit from spread compression as prices rally off of low levels. In terms of sector weights, we are overweight
REITs, electric utilities, finance companies and technology sectors. Overweights generally result from an aggregation
of where we are finding the largest number of attractively priced securities. We remain most underweight energy and
consumer cyclicals as these segments are expected to face negative credit trends in the coming quarters.

Outlook

While COVID-19 may prove transient, the ultimate severity of the human and economic toll remain as large unknowns.
Policy support has begun, and we expect much more will be forthcoming, yet markets will also need to see signs that
the outbreak is under control in the U.S. From the top-level portfolio perspective, we anticipate heightened volatility to
persist for the next few weeks, if not months.

Outflows have been relatively orderly and while spreads have widened, we are still early in the U.S. and Europe
COVID-19 impacts, in our opinion. At present, it looks likely that the U.S. and Europe will have a brief but sharp
economic contraction followed by a gradual recovery rather than a sharp upturn. Default outcomes will depend upon
the duration of the contraction, as well as the time it takes to see a meaningful upturn. Given the sector mix and
leverage characteristics of the market, our base case is a roughly 8% default rate in 2020 based on par-amount.

Overall, we believe more patient positioning is prudent, although recent spread widening has made belowinvestment-
grade segments look attractive. The rate cuts and additional quantative easing actions are a signal the Fed
stands ready to help, but we do not believe monetary policy alone will solve issues related to the economic impacts of
social distancing. The market continues to look for two key areas of policy responses – one in the form of fighting the
virus and the other in the form of financial support. We have seen progress on both initiatives. Our view is that the virus
is causing a valuation reset in credit and creating very attractive opportunities in the high-yield asset class. Even
credits that are not impacted or stand to benefit from the current environment are trading at wide levels. We expect
that COVID-19’s overall negative effect on the economy will fade by the second half of 2020, resulting in materially
better valuations.

The opinions expressed are those of the Fund’s managers and are not meant as investment advice or to predict or project the future performance of any investment product. The opinions are current through March
31, 2020, are subject to change at any time based on market and other current conditions, and no forecasts can be guaranteed. This commentary is being provided as a general source of information and is not
intended as a recommendation to purchase, sell, or hold any specific security or to engage in any investment strategy. Investment decisions should always be made based on an investor’s specific objectives, financial
needs, risk tolerance and time horizon. Past performance is not a guarantee of future results.

The Bloomberg Barclays U.S. Corporate High-Yield Index measures the U.S. dollar-denominated, high-yield, fixed-rate corporate bond market. It is not possible to invest directly in an index.

All information is based on Class I shares.

The impact of COVID-19, and other infectious illness outbreaks that may arise in the future, could adversely affect the economies of many nations or the entire global economy, individual issuers and capital markets
in ways that cannot necessarily be foreseen. In addition, the impact of infectious illnesses in emerging market countries may be greater due to generally less established healthcare systems. Public health crises
caused by the COVID-19 outbreak may exacerbate other pre-existing political, social and economic risks in certain countries or globally. The duration of the COVID-19 outbreak and its effects cannot be determined
with certainty.

Risk factors: The value of the Fund’s shares will change, and you could lose money on your investment. An investment in the Fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. Fixed income securities are subject to interest rate risk and, as such, the net asset value of the Fund may fall as interest rates rise. Investing in below investment
grade securities may carry a greater risk of nonpayment of interest or principal than higher-rated bonds. International investing involves additional risks including currency fluctuations, political or economic conditions
affecting the foreign country, and differences in accounting standards and foreign regulations. These risks are magnified in emerging markets. These and other risks are more fully described in the Fund’s prospectus.
Not all funds or fund classes may be offered at all broker/dealers.

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Market Sector Update

The low volatility, upward trajectory of global equity markets suddenly reversed in late February and markets
declined precipitously in response to two exogenous shocks: the COVID-19 pandemic and the collapse in energy
markets, which was initially supply-driven.

Social-distancing containment efforts to combat the spread of COVID-19 have created a sudden stop in economic
activity. High frequency economic indicators have collapsed as activity was throttled back into recessionary levels.
Unemployment is surging by record magnitudes and declines in economic growth will very likely be astounding in the
second quarter.

However, it is becoming increasingly evident that social distancing is effectively lowering infection rates and
mitigating the worst possible outcomes of the pandemic. Governments and central banks have taken unprecedented
steps to mitigate the economic blow of social distancing. The U.S. Federal Reserve (Fed) has already made two
emergency cuts to its policy rate, launched yet another quantitative easing program and implemented several tools
that took over a year to deploy during the financial crisis. In a matter of two weeks, the Fed’s balance sheet has
expanded by $2 trillion, matching the increase from the entire five-year span of 2008-2013. In addition to the monetary
easing, Congress passed a $2.2 trillion rescue package, the CARES act that should provide meaningful support for the
recovery.

Portfolio Strategy

The Fund experienced significant losses in the quarter and underperformed its benchmark index during the period.
Fund performance reflected the mix of returns in the underlying funds and their allocation weightings. The most
significant detractors were the Ivy Pzena International Value Fund, the Ivy International Core Equity Fund and the Ivy
International Small Cap Fund. The Ivy Global Growth Fund positively contributed to relative performance as growth
styles outperformed value during the quarter.

The Fund ended the period with the following target asset allocation: Ivy International Core Equity Fund 35%, Ivy
Pzena International Value Fund 20%, Ivy Emerging Markets Equity Fund 15% and a 10% allocation each to Ivy Global
Growth Fund, Ivy International Small Cap Fund and Ivy Global Equity Income Fund to provide a well-diversified portfolio
of international stocks.

Outlook

Global markets and economies face unprecedented challenges from both the direct impact of the virus and the
secondary effects of social distancing efforts. The economic losses in the first half of 2020 will likely exceed those
experienced in 2008. However, growth in cases, hospitalizations and deaths are already falling in several European
nations and China has been gradually relaxing its distancing restrictions since early March. There are tentative signs
of stabilization in the health data in the U.S. If distancing measures prove to have been effective – and barring a
resurgence in new cases in geographies having already slowed the spread – then the prospects are good for a
significant rebound in economic activity in the second half of 2020 and beyond. While recovery will take time, human
ingenuity in pursuit of treatment and immunizations combined with unprecedented levels of monetary and fiscal
stimulus make the case for a much more rapid rebound than prior recessions.

The opinions expressed are those of the Fund’s managers and are not meant as investment advice or to predict or project the future performance of any investment product. The opinions are current through March
31, 2020, are subject to change at any time based on market and other current conditions, and no forecasts can be guaranteed. This commentary is being provided as a general source of information and is not
intended as a recommendation to purchase, sell, or hold any specific security or to engage in any investment strategy. Investment decisions should always be made based on an investor’s specific objectives, financial
needs, risk tolerance and time horizon. Past performance is not a guarantee of future results.

All information is based on Class I shares.

The impact of COVID-19, and other infectious illness outbreaks that may arise in the future, could adversely affect the economies of many nations or the entire global economy, individual issuers and capital markets
in ways that cannot necessarily be foreseen. In addition, the impact of infectious illnesses in emerging market countries may be greater due to generally less established healthcare systems. Public health crises
caused by the COVID-19 outbreak may exacerbate other pre-existing political, social and economic risks in certain countries or globally. The duration of the COVID-19 outbreak and its effects cannot be determined
with certainty.

Risk factors: The value of the Fund's shares will change, and you could lose money on your investment. International investing involves additional risks including currency fluctuations, political or economic conditions
affecting the foreign country, and differences in accounting standards and foreign regulations. These risks are magnified in emerging markets. The performance of the Fund will depend on the success of the allocations
among the chosen underlying funds. Investing in a single region involves greater risk and potential reward than investing in a more diversified fund. These and other risks are more fully described in the fund's
prospectus. Not all funds or fund classes may be offered at all broker/dealers.

Lock this content.:

The first quarter of 2020 will undoubtedly be one of the most historic periods for not only the economy and capital
markets, but for modern civilization. To begin the year, markets were coming off a period where the trade war overhang
had lifted and economic activity in international markets was on a positive trajectory. The biggest risk to global equity
markets appeared to be U.S. elections. This quickly reversed as COVID-19 put economies at a standstill and oil
collapsed as demand vanished and a dispute broke out between Russia and Saudi Arabia.

The U.S. dollar also added some pressure to U.S.-based returns as it appreciated roughly 2.75% against a basket of
currencies. Government bond yields moved significantly lower as central banks across the world aggressively cut
benchmark rates.

All sectors were in deep negative territory for the quarter. Returns amongst sectors were dispersed in a classic bear
market or recessionary manner, with defensive sectors holding-up significantly better than more economically
sensitive sectors. Health care performed the best, down 8.9%. Energy, which also faced pressure from the Russia-
Saudi Arabia rift, was down 36.2% for the quarter.

In the face of what will likely be the sharpest economic downturn in decades, governments and central banks tapped
their financial war chests and launched all possible weapons at their disposal. This was met with some relief in the
markets toward the end of the quarter, but markets were still down significantly.

Portfolio Strategy

The Fund posted negative performance for the quarter and underperformed its benchmark index. Underperformance
was largely driven by poor stock selection in financials and industrials, an underweight allocation and stock selection
in Japan, and the Fund’s allocation to energy where a relative overweight and stock selection detracted from
performance. On the positive side, stock selection in real estate and consumer discretionary helped as well as an
underweight to financials. The Fund’s cash and gold allocations also benefitted performance.

Of note, top relative detractors to performance included Airbus SE, Seven Generations Energy Ltd., Class A and BNP
Paribas S.A. Airbus produces aircraft and military equipment. The stock plunged because air travel was adversely
affected by COVID-19, which led to production cuts. We continue to like Airbus as it maintains a dominant market share
in an oligopolistic industry, strong free cash flow and solid balance sheet. We believe the long-term secular growth
trends in air travel remain intact.

Seven Generations Energy is a Canadian oil company. The stock plunged with the decline in oil prices. We continue
to hold the stock as we believe Seven Generations Energy is much more likely to survive than the stock price implies.
They are lower on the cost curve and we believe they have a stronger balance sheet than most North American peers.

BNP is a diversified Paris-based global bank. The stock sank with investor concern that, like other banks, it would
be required by regulators to cancel its annual dividend (it has been delayed) and a deteriorating earnings outlook in
light of issues related to COVID-19. We continue to hold the stock given its lower-than-average risk profile and its ability
to continue to consolidate market share in Europe.

On the positive side, SMC Corp., Ubisoft Entertainment S.A., and Deutsche Wohnen AG were the greatest contributors
to performance. SMC is a Japanese global industrial company with a position in factory automation and significant
exposure (50% of business base) to automotive and electronic end markets. The strong stock performance reflects
continued market share gains which are driving higher margins, expectations for continued recovery in semi equipment and in China, and strong demand in electronics.

Ubisoft is a French company that is one of the largest videogame producers/distributors in the world. The stock held
up well in part because of the defensive nature of the business, including the popularity of gaming during COVID-19.
We believe management is taking measures to be more competitive and there is a strong secular growth story.

Deutsche Wohnen manages and develops residential and commercial properties in Germany, primarily in Berlin. The
stock dropped in 2019 due to an unexpected announcement by Berlin politicians of a rent freeze for five years. The
stock has been recovering as the appeal process to the highest German court was initiated, valuations of its properties
increased. Also, the company has been buying back stock.

Over the quarter, the Fund was relatively active. As relative value managers, opportunities like this don’t come often.
One recent purchase was Compass Group plc, a U.K.-based catering and food services company. With a large U.S.
business, shares fell sharply with the U.S. restaurant sector. However, they do not have large fixed costs or asset base
and have a more manageable debt load. Compass is an example where this market volatility gave us an opportunity to
invest in what we believe is a high-quality business with strong long-term prospects at a compelling valuation.

The Fund sold China Construction Bank Corp. as it had been a meaningful outperformer.

Outlook

The world has quickly changed – COVID-19 has taken a very large toll on capital markets and volatility will likely
continue as anticipation of the severity and duration of the outbreak evolves and companies report earnings.

Oil is also top of mind. Low demand and oversupply will continue to depress oil prices until these pressures ease.
There will likely be an agreement between Russia and Saudi Arabia as talks seem to be underway. This will help the
supply side of the equation, but demand will not recover until economic activity normalizes. In the end, companies low
on the cost curve with strong balance sheets and good assets will survive and thrive as the weaker players fade away.

Monetary policy will be very accommodative throughout the world. Central banks will likely exhaust everything at
their disposal to keep economies afloat. Fiscal stimulus is also a key component of economic survival. Whether it is
large spending packages like in the U.S. or large-scale investments directly in public equities like in Japan, this
government behavior will continue.

The world will eventually recover, but the timeline of this pandemic is still unknown and the range of outcomes is
wide. We believe a depth of knowledge in the business models we invest in, the sustainability of their balance sheets,
and buying them at perceived attractive relative valuations is a well-suited approach in this environment.

The opinions expressed are those of the Fund’s managers and are not meant as investment advice or to predict or project the future performance of any investment product. The opinions are current through March
31, 2020, are subject to change at any time based on market and other current conditions, and no forecasts can be guaranteed. This commentary is being provided as a general source of information and is not
intended as a recommendation to purchase, sell, or hold any specific security or to engage in any investment strategy. Investment decisions should always be made based on an investor’s specific objectives, financial
needs, risk tolerance and time horizon.Past performance is not a guarantee of future results.
Top 10 equity holdings as a percent of net assets as of 03/31/2020: Nestle S.A., Registered Shares 2.8%, Roche Holdings AG, Genusscheine 2.7%, SAP AG 2.5%, Seven & i Holdings Co. Ltd. 2.2%, Total S.A. 2.1%,
Deutsche Wohnen AG 1.9%, Hong Kong Exchanges and Clearing Ltd. 1.9%, SPDR Gold Trust 1.9%, Airbus SE 1.8% and Subaru Corp. 1.8%.
All information is based on Class I shares.

The impact of COVID-19, and other infectious illness outbreaks that may arise in the future, could adversely affect the economies of many nations or the entire global economy, individual issuers and capital markets
in ways that cannot necessarily be foreseen. In addition, the impact of infectious illnesses in emerging market countries may be greater due to generally less established healthcare systems. Public health crises
caused by the COVID-19 outbreak may exacerbate other pre-existing political, social and economic risks in certain countries or globally. The duration of the COVID-19 outbreak and its effects cannot be determined
with certainty.

Risk factors: The value of the Fund's shares will change, and you could lose money on your investment. An investment in the Fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. International investing involves additional risks including currency fluctuations, political or economic conditions affecting the foreign country, and differences in
accounting standards and foreign regulations. These risks are magnified in emerging markets. These and other risks are more fully described in the fund's prospectus. Not all funds or fund classes may be offered at
all broker/dealers.

Lock this content.:

Market Sector Update

Volatility rocked the oil markets as crude oil prices fell 67% in the quarter and a perfect storm of falling demand and
increased supply jolted the industry. The “OPEC+” group of producing countries was unable to reach an agreement on
production cuts, which led to a price war that increased oil production. This happened at the worst time because of the
unprecedented demand shock from the spread of the coronavirus.

OPEC+ failed to agree to extend output cuts beyond March 2020 due to Russia’s decision to disagree with the rest
of the producers. This led Saudi Arabia to start a price war with a significant increase in production rather than by
restricting production. At the same time, worldwide oil demand fell by more than 20 million barrels a day due the
spread of COVID-19 as the world sheltered in place, schools closed and nonessential businesses shut down. The
demand shock was most notable in lower usage of gasoline and aviation fuel.

Current market conditions are leading oil and gas companies to reduce capital spending, suspend share repurchases
and cut dividends. Rig count is down in the U.S. and oil inventories are rapidly filling up around the world. As the price
of oil approaches a cash cost, forced production shut ins for some oil producers will occur. This will affect production
in U.S. shales and older conventional oilfields.

Portfolio Strategy

The Portfolio had a negative return for the quarter, underperforming the S&P 1500 Energy Sector Index, its
benchmark. The index also experienced negative performance over the period.

During the quarter, we raised cash as oil fundamentally deteriorated due to the OPEC and Russia price conflict and
demand destruction related to the COVID-19 pandemic. We reduced our exposure to oil service companies and
exploration and production companies.

Industry allocations changed when compared to those of the prior quarter. Approximately 25% of the equity holdings
in the Portfolio were allocated to the oil and gas exploration and production industry segment, followed by 18% to oil
and gas equipment and services and 17% to oil and gas refining and marketing.

The Portfolio’s allocation to U.S. equity also was steady from the prior quarter at about 19% of equity assets and cash.

The focus of the energy strategy remains on investing in companies that can create value over the full course of the
energy cycle. We identify those as companies that are low-cost operators, have strong balance sheets, have the ability
to grow profitably and have strong return on capital.

Outlook

We believe the oil markets will be well over supplied in the second and third quarters of calendar year 2020 due to
lower demand associated with the COVID-19 pandemic. Markets should start to rebalance in fourth quarter 2020 as
demand returns and oil production will be lower due to forced shuts and production cuts. We think natural gas will
remain over supplied in 2020 and will start to rebalance as fundamentals improve due to lower associated gas coming from lower U.S. shales oil production.

It is impossible to have oil demand down 25+% without affecting the oil supply. Oil production in the U.S. will be
forced to shut in and we think production could be down more than 2 million barrels a day by the end of calendar year
2021. We think that Saudi Arabia, Russia and other OPEC countries will end their price war and cut production to slow
the building of worldwide oil inventories. We believe the oil markets will begin to rebalance when production shuts in
and economic activity begins to normalize in the second half of calendar year 2020.

The demand shock is very negative as some onshore oil prices go into the red as infrastructure, pipelines and storage
fill to capacity. There is very limited spare capacity left in the world to store crude and products and we could test the
limits of inventory capacity in the next three months. We expect oil inventories to reach full capacity and force oil prices
to cash cost. Both will force shut ins before oil demand begins to return as the world gets back to a working life.

The opinions expressed are those of the Portfolio’s managers and are not meant as investment advice or to predict or project the future performance of any investment product. The opinions are current through
March 31, 2020, are subject to change at any time based on market and other current conditions, and no forecasts can be guaranteed. This commentary is being provided as a general source of information and is
not intended as a recommendation to purchase, sell, or hold any specific security or to engage in any investment strategy. Investment decisions should always be made based on an investor’s specific objectives,
financial needs, risk tolerance and time horizon. Past performance is not a guarantee of future results.

The S&P 1500 Energy Sector Index is an unmanaged index comprised of securities that represent the energy sector of the stock market. It is not possible to invest directly in an index.

The impact of COVID-19, and other infectious illness outbreaks that may arise in the future, could adversely affect the economies of many nations or the entire global economy, individual issuers and capital markets
in ways that cannot necessarily be foreseen. In addition, the impact of infectious illnesses in emerging market countries may be greater due to generally less established healthcare systems. Public health crises
caused by the COVID-19 outbreak may exacerbate other pre-existing political, social and economic risks in certain countries or globally. The duration of the COVID-19 outbreak and its effects cannot be determined
with certainty.

Risk factors: The value of the Portfolio’s shares will change, and you could lose money on your investment. Because the Portfolio invests more than 25% of its total assets in the energy related industry,
the Portfolio may be more susceptible to a single economic, regulatory, or technological occurrence than a portfolio that does not concentrate its investments in this industry. Investing in companies involved in one
specified sector may be more risky and volatile than an investment with greater diversification. The Portfolio typically holds a limited number of stocks (generally 35 to 55). As a result, the appreciation or depreciation
of any one security held by the Portfolio may have a greater impact on the Portfolio’s net asset value (NAV) than it would if the Portfolio invested in a larger number of securities. Investing in the energy sector can be
riskier than other types of investment activities because of a range of factors, including price fluctuation caused by real and perceived inflationary trends and political developments, and the cost assumed by energy
companies in complying with environmental safety regulations. The Portfolio may invest in Initial Public Offerings (IPOs), which can have a significant positive impact on the Portfolio’s performance that may not be
replicated in the future. These and other risks are more fully described in the Portfolio’s prospectus.

Annuities are long-term financial products designed for retirement purposes. Annuity and life insurance guarantees are based on the financial strength and claims-paying ability of the issuing insurance company. The
guarantees have no bearing on the performance of a variable investment option. Variable investment options are subject to market risk, including loss of principal. There are charges and expenses associated with
annuities and variable life insurance products, including mortality and expense risk charges, management fees, administrative fees, expenses for optional riders and deferred sales charges for early withdrawals.
Withdrawals before age 59 1/2 may be subject to a 10% IRS tax penalty and surrender charges may apply.

Lock this content.:

The market optimism surrounding the phase one trade resolution between the U.S. and China announced in
December 2019 faded early in the first quarter 2020 as the novel coronavirus, COVID-19, began to spread in China and
constrained economic activity in an effort to contain its advance. The outbreak has since spread throughout the globe
over the course of the quarter, prompting governments to respond with mandated economic shutdowns and stay-athome
orders.

U.S. markets reacted swiftly, with the CBOE Volatility Index spiking above 80 and the Russell 2000 Index, the Fund’s
benchmark, posting one of its worst quarters ever, declining more than 30%. No sectors were immune in this
environment. Leadership was utilities (-12.65%), followed by health care (-19.42%) and consumers staples (-21.45%). The
weakest sector was energy (-62.33%), followed by consumer discretionary (-44.27%), and materials (-39.28%). At the
individual stock level, more highly levered and higher beta stocks were hit disproportionately in this market draw
down.

The soft landing the Federal Reserve (Fed) was trying to engineer with three interest rate cuts between July -
November 2019, rapidly turned into crisis management in March. In total, the federal funds rate was cut by 175 basis
points (bps) and is now back to its lower bound. Global central banks have taken similar action and unleashed massive
liquidity into their respective markets to combat seizures in funding markets stemming from virus-related shutdowns. In
addition, fiscal programs –some exceeding 10% of gross domestic product (GDP) in certain countries, including the U.S.
– have been launched to attempt help both businesses and consumers bridge the gap until daily life can return to
some semblance of normalcy.

While China’s economy has reopened to some extent, there still remains uncertainty as to whether all is clear. While
the rest of the world does not have a command economy like China, which has allowed for stricter restrictions, the
sooner they show the COVID-19 spread is completely under control should give a clearer template for what others
might expect. Ultimately, it would appear that until a vaccine is discovered no one will feel completely safe.

Portfolio Strategy

The Fund delivered a negative return, but outperformed its benchmark for the quarter.

The outperformance was driven by stock selection in the communications services sector, particularly Cogent
Communications, which stands to benefit from greater data volume going over its network. In addition, an overweight
coupled with stock selection in consumer staples also contributed to performance. Conversely, stock selection in
information technology and financials partially offset the outperformance.

The Fund generated positive attribution in seven of the 11 sectors in comparison to the benchmark, with
communication services, consumer staples and real estate performing the best. The largest detractors were
information technology, financials and utilities.

The top 20 average holdings aggregated to a 100 bps tailwind to relative performance. Chemed Corporation, Cogent
Communications and Switch, Inc. each added over 100 bps of outperformance, offsetting some underperformance
from Cardtronics, Magnolia Oil and Gas and MGIC Investment Corp.

Given the volatility in the quarter, it comes as no surprise there were a relatively large amount of stocks (28) that
contributed or detracted greater than 25 bps to attribution in the quarter. All together, these bigger movers provided
a net contribution of less than 50 bps to the Fund.

While pleased with our relative outperformance, particularly at a time when a large percentage of peers lagged the
benchmark, we were somewhat disappointed our performance wasn’t better. This was primarily due to some of our
larger holdings not holding up as well as we would have expected during the quarter.

Outlook

Coming into this quarter, we were of the belief that we were late in the economic cycle. We now think that impact of
the COVID-19 outbreak has put us into a recession. We think the depth of this downturn will be determined by a
combination of the length and severity of the virus spread and whether monetary and fiscal stimulus can effectively
bridge us to the other side.

Our view is the economic damage brought about by the efforts to contain the virus will not be easily undone and
will take some time to completely become apparent. Everyone is still digesting how this will impact their lives going
forward. This is also happening with businesses. There are still a vast number of unanswered questions that need to
be answered in the months ahead.

Our approach is to remain defensive while opportunistically adding to higher quality, yet more economically sensitive
names that have been battered in the selloff. We will come out the other side, and it is true that the punishment in the
small-cap arena has been dramatic, but bear markets seldom are resolved in short order.

Independent of what the market holds, we believe our process of identifying quality, underappreciated companies –
coupled with thoughtful portfolio construction – can set us up to perform well against our peers and benchmark over
time.

The opinions expressed are those of the Fund’s manager and are not meant as investment advice or to predict or project the future performance of any investment product. The opinions are current through March
31, 2020, are subject to change at any time based on market and other current conditions, and no forecasts can be guaranteed. This commentary is being provided as a general source of information and is not
intended as a recommendation to purchase, sell, or hold any specific security or to engage in any investment strategy. Investment decisions should always be made based on an investor’s specific objectives, financial
needs, risk tolerance and time horizon. Past performance is not a guarantee of future results.
All information is based on Class I shares.
The Russell 2000 Index is an index measuring the performance approximately 2,000 small-cap companies in the Russell 3000 Index, which is made up of 3,000 of the biggest U.S. stocks. It is not possible to invest
directly in an index.

The impact of COVID-19, and other infectious illness outbreaks that may arise in the future, could adversely affect the economies of many nations or the entire global economy, individual issuers and capital markets
in ways that cannot necessarily be foreseen. The duration of the COVID-19 outbreak and its effects cannot be determined with certainty.

Risk factors: The value of the Fund’s shares will change, and you could lose money on your investment. Investing in small-cap growth and value stocks may carry more risk than investing in stocks of larger, more
well-established companies. Growth stocks may be more volatile or not perform as well as value stocks or the stock market in general. Value stocks are stocks of companies that may have experienced adverse
developments or may be subject to special risks that have caused the stocks to be out of favor and, in the opinion of the Fund’s manager, undervalued. Such security may never reach what the manager believes to
be its full value, or such security’s value may decrease. The Fund typically holds a limited number of stocks (generally 40 to 60). As a result, the appreciation or depreciation of any one security held by the Fund may
have a greater impact on the Fund’s net asset value than it would if the Fund invested in a larger number of securities. These and other risks are more fully described in the Fund’s prospectus. Not all funds or fund
classes may be offered at all broker/dealers.

Lock this content.:

The decade-long bull market came to an abrupt and painful end with the emergence of the COVID-19 virus. Up until
that time, the market was looking like it was on track for another solid year. A trade deal with China and record-low
unemployment had the stock market setting new highs.

Just like that, everything changed. More than 80% of the country was ordered to shelter-in-place, with the rest of the
country likely headed that way. With the order, small and large businesses alike were forced to shut their doors and
dramatically change how they operated. Record low unemployment changed to record high unemployment almost
overnight. Adding to the pain, Russia and Saudi Arabia started an oil price war by disagreeing to any production cuts,
causing oil prices to collapse. The Federal Reserve (Fed) then took interest rates to zero. Finally, the U.S. government
responded with an unprecedented support package.

We expect market volatility to be very high for the near term but are more constructive for the longer term. While
each day brings with it an unthinkable new surprise, we believe the coronavirus is temporary, and we expect growth
to improve in the back half of 2020 as the frozen economy begins to thaw out.

Portfolio Strategy

The Russell 1000 Value Index, the Fund’s benchmark, was down 26.7% for the quarter, underperforming the index
for the period. Nearly all of the quarter’s underperformance occurred in March as the market dropped significantly. We
believe market volatility often favors value investing; however, many high-quality companies are now trading at
depressed prices. We feel optimistic that careful buying at these low prices will be rewarded.

The Fund’ best performing sectors on a relative basis were consumer discretionary and information technology.
Sectors that dragged on performance included health care and financials. Our largest overweight sectors were
information technology and consumer discretionary, while the most underweight sectors were real estate and health
care.

The virus quickly ended several positive trends in financials, the sector that detracted the most from Fund
performance during the quarter. Strong consumer credit card spending dramatically slowed, hurting portfolio holding
Synchrony Financial. AGNC Investment Corp., our mortgage real estate investment trust holding, was down due to
fears over both mortgage defaults and volatile fixed-income markets. Additionally, the Fund’s underweight to the
health care sector, specifically within pharma and health care equipment, detracted from our relative performance as
investors flocked to those industries during the pandemic.

The Fund’s best sector was consumer discretionary, with Target doing well as a safe haven in a time when many retail
businesses are closed. Walmart, in the consumer staples sector, experienced similar benefits. Information technology
also contributed, and to date has fared better than many sectors in response to COVID-19. Our investments in Lam
Research and Microsoft were the bright spots. Lam Research continues to benefit from strong spending for
semiconductors. Microsoft continues to do well with its cloud strategy.

Our strategy does not attempt to make sector calls, rather focusing primarily on stock selection. We overweight or
underweight sectors based on individual stock opportunity, with some limits to control risk or volatility. We are currently
overweight financials and information technology, where we are finding value and yield. These two sectors often move
in opposite directions, which can provide an overall lessening of volatility. In these areas, we have been able to find what we believe are good companies with repeatable business models generating high rates of free cash flow, and
low stock prices relative to our estimation of each company’s true intrinsic value. Our underweight to real estate and
communications services is simply due to lack of compelling ideas.

Outlook

The U.S. economy had enjoyed a long successful run from the end of the 2008 recession, but the coronavirus ended
this streak in March. We think the pandemic-driven shutdown in economic activity will cause a recession unlike any we
have ever seen before. For the foreseeable future, battling the virus will dominate life and drive stock prices and the
U.S. economy going forward. While we recognize there are many unknowns in this battle, the government backstop
provides the markets a bit of relief. As we get closer to a vaccine, the world should restart, thus our reason for a
constructive longer-term outlook. In the meantime, we will continue to seek value as opportunities present themselves.

While the economic forces listed above are clearly important factors, our first approach is from the company level.
We seek to find quality, growing companies whose stocks are trading below what we consider their intrinsic values.
This often is due to short-term negative factors, and we become larger owners of a company if we feel those negatives
are about to dissipate. We continue to search for and make investments one company at a time to seek to benefit
clients over the long run.

The opinions expressed are those of the Fund’s manager and are not meant as investment advice or to predict or project the future performance of any investment product. The opinions are current through March
31, 2020, are subject to change at any time based on market and other current conditions, and no forecasts can be guaranteed. This commentary is being provided as a general source of information and is not
intended as a recommendation to purchase, sell, or hold any specific security or to engage in any investment strategy. Investment decisions should always be made based on an investor’s specific objectives, financial
needs, risk tolerance and time horizon. Past performance is not a guarantee of future results.
Top 10 holdings (%) as of 03/31/2020: Walmart, Inc. 4.7, Philip Morris International, Inc. 4.1, CVS Caremark Corp. 3.9, Bank of America 3.8, Exelon Corp. 3.7, Comcast Corp. 3.5, Fidelity National Information Services, Inc.
3.2, Allstate Corp. 3.2, Northrop Grumman Corp. 3.0 and Citigroup, Inc. 3.0.
The Russell 1000 Value Index is an unmanaged index comprised of securities that represent the large-cap sector of the stock market. It is not possible to invest directly in an index.
The impact of COVID-19, and other infectious illness outbreaks that may arise in the future, could adversely affect the economies of many nations or the entire global economy, individual issuers and capital markets
in ways that cannot necessarily be foreseen. In addition, the impact of infectious illnesses in emerging market countries may be greater due to generally less established healthcare systems. Public health crises
caused by the COVID-19 outbreak may exacerbate other pre-existing political, social and economic risks in certain countries or globally. The duration of the COVID-19 outbreak and its effects cannot be determined
with certainty.

All information is based on Class I shares.Risk factors: The value of the Fund's shares will change, and you could lose money on your investment. An investment in the Fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. The value of a security believed by the Fund’s manager to be undervalued may never reach what the manager believes to be its full value, or such security’s
value may decrease. Investing in companies in anticipation of a catalyst carries the risk that certain of such catalysts may not happen or the market may react differently than expected to such catalysts, in which case
the Fund may experience losses. The securities of many companies may have significant exposure to foreign markets as a result of the company’s operations, products or services in those foreign markets. As a
result, a company’s domicile and/or the markets in which the company’s securities trade may not be fully reflective of its sources of revenue. Such securities would be subject to some of the same risks as an
investment in foreign securities, including the risk that political and economic events unique to a country or region will adversely affect those markets in which the company’s products or services are sold. Not all
funds or fund classes may be offered at all broker/dealers. These and other risks are more fully described in the Fund's prospectus.

Lock this content.:

Market Sector Update

The market optimism surrounding the phase one trade resolution between the U.S. and China announced in
December 2019 faded early in the first quarter 2020 as the novel coronavirus, COVID-19, began to spread in China and
constrained economic activity in an effort to contain its advance. The outbreak has since spread throughout the globe
over the course of the quarter, prompting governments to respond with mandated economic shutdowns and stay-athome
orders.

U.S. markets reacted swiftly, with the CBOE Volatility Index spiking above 80 and the Russell 2000 Index, the
Portfolio’s benchmark, posting one of its worst quarters ever, declining greater than 30%. No sectors were immune in
this environment. Leadership was utilities (-12.65%), followed by health care (-19.42%) and consumers staples (-
21.45%). The weakest sector was energy (-62.33%), followed by consumer discretionary (-44.27%), and materials (-
39.28%). At the individual stock level, more highly levered and higher beta stocks were hit disproportionately in this
market draw down.

The soft landing the Federal Reserve (Fed) was trying to engineer with three interest rate cuts between July -
November 2019, rapidly turned into crisis management in March. In total, the federal funds rate was cut by 175 basis
points (bps) and is now back to its lower bound. Global central banks have taken similar action and unleashed massive
liquidity into their respective markets to combat seizures in funding markets stemming from virus-related shutdowns. In
addition, fiscal programs –some exceeding 10% of gross domestic product (GDP) in certain countries, including the U.S.
– have been launched to attempt help both businesses and consumers bridge the gap until daily life can return to
some semblance of normalcy.

While China’s economy has reopened to some extent, there still remains uncertainty as to whether all is clear. While
the rest of the world does not have a command economy like China, which has allowed for stricter restrictions, the
sooner they show the COVID-19 spread is completely under control should give a clearer template for what others
might expect. Ultimately, it would appear that until a vaccine is discovered no one will feel completely safe.

Portfolio Strategy

The Portfolio delivered a negative return, but outperformed its benchmark for the quarter.

The outperformance was driven by stock selection in the communications services sector. In addition, an overweight
coupled with stock selection in consumer staples also contributed to performance. Conversely, stock selection in
information technology and financials partially offset the outperformance.

The Portfolio generated positive attribution in seven of the 11 sectors in comparison to the benchmark, with
communication services, consumer staples and real estate performing the best. The largest detractors were
information technology, financials and utilities. The top 20 average holdings aggregated to a 100 bps tailwind to
relative performance.

Given the volatility in the quarter, it comes as no surprise there were a relatively large amount of stocks (28) that
contributed or detracted greater than 25 bps to attribution in the quarter. All together, these bigger movers provided
a net contribution of less than 50 bps to the Portfolio.

While pleased with our relative outperformance, particularly at a time when a large percentage of peers lagged the
benchmark, we were somewhat disappointed our performance wasn’t better. This was primarily due to some of our
larger holdings did not hold up as well as we would have expected during the quarter.

Outlook

Coming into this quarter, we were of the belief that we were late in the economic cycle. We now think that impact of
the COVID-19 outbreak has put us into a recession. We think the depth of this downturn will be determined by a
combination of the length and severity of the virus spread and whether monetary and fiscal stimulus can effectively
bridge us to the other side.

Our view is the economic damage brought about by the efforts to contain the virus will not be easily undone and
will take some time to completely become apparent. Everyone is still digesting how this will impact their lives going
forward. This is also happening with businesses. There are still a vast number of unanswered questions that need to
be answered in the months ahead.

Our approach is to remain defensive while opportunistically adding to higher quality, yet more economically sensitive
names that have been battered in the selloff. We will come out the other side, and it is true that the punishment in the
small-cap arena has been dramatic, but bear markets seldom are resolved in short order.

Independent of what the market holds, we believe our process of identifying quality, underappreciated companies –
coupled with thoughtful strategy construction – can set us up to perform well against our peers and benchmark over
time.

The opinions expressed are those of the Portfolio's managers and are not meant as investment advice or to predict or project the future performance of any investment product. The opinions are current through
March 31, 2020, are subject to change at any time based on market and other current conditions, and no forecasts can be guaranteed. This commentary is being provided as a general source of information and is
not intended as a recommendation to purchase, sell, or hold any specific security or to engage in any investment strategy. Investment decisions should always be made based on an investor’s specific objectives,
financial needs, risk tolerance and time horizon. Past performance is not a guarantee of future results.

The Russell 2000 Index is an index measuring the performance approximately 2,000 small-cap companies in the Russell 3000 Index, which is made up of 3,000 of the biggest U.S. stocks. It is not possible to invest
directly in an index.

The CBOE Volatility Index is a calculation designed to produce a measure of constant, 30-day expected volatility of the U.S. stock market.

The impact of COVID-19, and other infectious illness outbreaks that may arise in the future, could adversely affect the economies of many nations or the entire global economy, individual issuers and capital markets
in ways that cannot necessarily be foreseen. The duration of the COVID-19 outbreak and its effects cannot be determined with certainty.
Leverage refers to the amount of debt a firm uses to finance assets. Beta is a measure of a security or portfolio’s sensitivity to market movements (proxied using an index). A beta of greater than 1 indicates more
volatility than the market, and a beta of less than 1 indicates less volatility than the market.

Risk factors: The value of the Portfolio's shares will change, and you could lose money on your investment. An investment in the Portfolio is not insured or guaranteed by the FDIC or any other government agency.
Investing in small-cap growth and value stocks may carry more risk than investing in stocks of larger, more well-established companies. Growth stocks may be more volatile or not perform as well as value stocks or
the stock market in general. Value stocks are stocks of companies that may have experienced adverse developments or may be subject to special risks that have caused the stocks to be out of favor and, in the
opinion of the Portfolio's manager, undervalued. Such security may never reach what the manager believes to be its full value, or such security's value may decrease. The Portfolio typically holds a limited number of
stocks (generally 40 to 60). As a result, the appreciation or depreciation of any one security held by the Portfolio may have a greater impact on the Portfolio's net asset value than it would if the Portfolio invested in
a larger number of securities. These and other risks are more fully described in the Portfolio's prospectus.

Annuities are long-term financial products designed for retirement purposes. Annuity and life insurance guarantees are based on the financial strength and claims-paying ability of the issuing insurance company. The
guarantees have no bearing on the performance of a variable investment option. Variable investment options are subject to market risk, including loss of principal. There are charges and expenses associated with
annuities and variable life insurance products, including mortality and expense risk charges, management fees, administrative fees, expenses for optional riders and deferred sales charges for early withdrawals.
Withdrawals before age 59 1/2 may be subject to a 10% IRS tax penalty and surrender charges may apply.

Lock this content.:

Market Sector Update

Markets exhibited historic levels of volatility with equity markets posting dramatic declines in the first quarter of
2020, as the COVID-19 pandemic spread across the globe and countries adopted increasingly stringent policies to
slow the rate of infection. As the quarter progressed, we witnessed a dizzying array of unprecedented market,
economic and societal events. In the realm of economics, the March initial jobless claims data was a stark indicator of
the challenge faced by the domestic economy with more than 3 million claims filed, a level that was four times the
previous record high.

As the economic ramifications of the virus and its remediation became apparent, markets declined and policy-makers
responded. Global central banks dramatically reduced interest rates with the Federal Reserve (Fed) cutting its target
range by 100 basis points (bps) over a two-week time period to 0.00% – 0.25%. In addition, the Fed launched a series
of monetary and regulatory measures to ease the hit to the U.S. economy including unlimited purchases of Treasury
and agency mortgages; various loan facilities; and foreign exchange swap lines with global central banks to name a
few.

The U.S. Congress also moved quickly to pass legislation. The most significant being the $2 trillion Coronavirus Aid,
Relief and Economic Security (CARES) Act, which was signed into law late in the quarter. Unfortunately, the number of
cases and deaths resulting from the COVID-19 virus continued to grow, which is first and foremost a tragic human loss
and secondarily, a growing threat to the global economy.

The S&P 500 Index, the Fund’s equity benchmark, declined 19.6% for the period, with the energy, financials,
industrials and real estate sectors leading the decline. While every sector posted negative returns for the quarter,
information technology, health care, consumer staples and utilities sectors declined the least.

The Fund’s fixed income benchmark, the Bloomberg Barclays U.S. Government/Credit Index rose 3.4% for the quarter,
as interest rates declined and U.S. Treasuries rallied. The 10-year Treasury yield collapsed by approximately 125 bps to
0.67%. The Treasury curve steepened modestly with the spread relationship between the 2-year and the 10-year
Treasury bond at 40 bps, up from 35 bps at the start of the quarter. Investment grade credit spreads widened
significantly during the quarter to 272 bps, a level historically coincident with economic recessions.

Portfolio Strategy

The Fund delivered a negative return and underperformed its benchmark for the quarter.

The Fund’s underperformance was driven by poor security selection in the equity and fixed income sleeves and a
modest overweight of equity. For the quarter, the equity weight of the Fund averaged 63%, the fixed income averaging
34% and the balance in cash.

Within the Fund’s equity sleeve, an overweight of pro-cyclical sectors and, in particular, the Industrial sector
hampered relative performance. Poor stock selection was also a meaningful detractor. The drivers of
underperformance at a security level were idiosyncratic in nature but broadly were a result of a value bias in the equity
sleeve. Stock selection detracted the most in the health care, information technology and industrials sectors.

Within the fixed income sleeve, our allocation to Treasury inflation protected securities produced a positive return
for the quarter, but underperformed nominal Treasuries which negatively impacted relative performance. In addition, poor security selection in the energy sector was a significant detractor. At the end of the quarter, the fixed income
sleeve had duration around seven years, which is approximately in-line with the benchmark.

Outlook

As we look ahead, global economic growth is likely to contract meaningfully in the near term as governments,
businesses and individuals adjust to the necessary realities of combating a global pandemic. Our thoughts and prayers
go out to the growing number of people tragically impacted by this virus as well as to those working tirelessly to
contain it. As stewards of your capital, it is our responsibility to perform the seemingly cold-hearted, but necessary
analysis of the financial impacts of this pandemic on markets and individual securities.

To that end, we made two significant changes over the course of the quarter. In January, we reduced the Fund's
equity exposure by 5%, the proceeds of which were invested in U.S. Treasuries. In March, we began reducing our
substantial position in Treasuries to fund purchases of predominately Investment Grade rated fixed income
instruments. As of quarter end, the Fund’s allocation to equity was 58%, fixed income was 40% with a cash balance of
2%.

The economic impacts of COVID-19 are likely to be significantly negative with unprecedented declines in economic
activity as measured by GDP very likely in the near term. The resulting surge in unemployment as well as likely credit
losses will dampen the outlook for growth. However, the experience of other countries provides some hope, and
increasingly evidence, that a sharp rebound in economic activity can commence once the spread of the virus slows.
While we believe domestic economic contraction is all-but-certain in the near term, the lagged effects of fiscal and
monetary stimulus put in place over the last several weeks is likely to bring some stability to financial markets and
eventually aid the economic recovery.

While we continue to monitor macroeconomic forces and trends, we maintain an emphasis on finding high quality,
growing companies whose securities are trading at a reasonable valuation with visible catalysts to drive relative
outperformance over the next 12 months. This approach has served investors well over time, and our confidence in it
has not waned.

The opinions expressed are those of the Fund’s managers and are not meant as investment advice or to predict or project the future performance of any investment product. The opinions are current through March
31, 2020, are subject to change at any time based on market and other current conditions, and no forecasts can be guaranteed. This commentary is being provided as a general source of information and is not
intended as a recommendation to purchase, sell, or hold any specific security or to engage in any investment strategy. Investment decisions should always be made based on an investor’s specific objectives, financial
needs, risk tolerance and time horizon. Past performance is not a guarantee of future results.

All information is based on Class I shares.

The S&P 500 Index is a float-adjusted market capitalization weighted index that measures the large-cap U.S. equity market. The index includes 500 of the top companies in leading industries of the U.S. economy. It
is not possible to invest directly in an index.

The Bloomberg Barclays U.S. Government/Credit Index measures the performance of U.S. dollar-denominated United States Treasuries, government-related, and investment-grade U.S. corporate securities that have
a remaining maturity of greater than or equal to one year. In addition, the securities have $250 million or more of outstanding face value and are fixed-rate and non-convertible securities. It is not possible to invest
directly in an index.

The impact of COVID-19, and other infectious illness outbreaks that may arise in the future, could adversely affect the economies of many nations or the entire global economy, individual issuers and capital markets
in ways that cannot necessarily be foreseen. The duration of the COVID-19 outbreak and its effects cannot be determined with certainty.

Risk factors: The value of the Fund’s shares will change, and you could lose money on your investment. An investment in the Fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. Fixed-income securities are subject to interest rate risk and, as such, the net asset value of the Fund may fall as interest rates rise. The lower-rated securities
in which the Fund may invest may carry greater risk of nonpayment of interest or principal then higher-rated bonds. In addition to the risks typically associated with fixed-income securities, loan participations in which
the Fund may invest carry other risks, including the risk of insolvency of the lending bank or other intermediary. Loan participations may be unsecured or not fully collateralized may be subject to restrictions on resale
and sometimes trade infrequently on the secondary market. The Fund’s emphasis on dividend-paying stocks involves the risk that such stocks may fall out of favor with investors and underperform non-dividend
paying stocks and the market as a whole over any period of time. In addition, there is no guarantee that the companies in which the Fund invests will declare dividends in the future or that dividends, if declared, will
remain at current levels or increase over time. The amount of any dividend the company may pay may fluctuate significantly. In addition, the value of dividend-paying common stocks can decline when interest rates
rise as fixed-income investments become more attractive to investors. This risk may be greater due to the current period of historically low interest rates. The Fund typically holds a limited number of stocks (generally
45 to 55). As a result, the appreciation or depreciation of any one security held by the Fund will have a greater impact on the Fund’s net asset value than it would if the Fund invested in a large number of securities.
The value of a security believed by the Fund’s manager to be undervalued may never reach what the manager believes to be its full value, or such security’s value may decrease. These and other risks are more fully
described in the Fund’s prospectus. Not all funds or fund classes may be offered at all broker/dealers.

Lock this content.:

Risk assets sold off dramatically starting Feb. 20 due to the COVID-19 pandemic. Investors seeking safety rushed
out of corporate bonds and into U.S. Treasuries and cash, which caused equities to decline by nearly 20% in the
quarter, while the high-yield sector returned -14.30% and leveraged loans returned -13.00%.

U.S. Treasuries rallied sharply with the yield on the 10-year U.S. Treasury falling 125 basis points (bps) from 1.92% to
0.67% at quarter-end.

Energy experienced the largest decline among all sectors, which was true for equity and fixed income. Other sectors
performing poorly in the period were gaming and leisure, down 20.4%, as well as transportation, which was down
18.6%.

Initial jobless claims data for March was a stark indicator of the challenge faced by the domestic economy with 3.28
million claims, a level that was four-times the previous record high.

As the economic ramifications of COVID-19 and its remediation became apparent, policymakers responded.
Unprecedented efforts from the Federal Reserve (Fed), coupled with the $2.2 trillion stimulus package from
Washington, helped to stabilize and improve credit markets before the end of the quarter.

Following the Fed and government actions, non-investment grade credit yields improved by 195 bps during the final
six days of the quarter, marking the second swiftest recovery on record, only behind the six-day stretch recovery of
207 bps in January 2009.

The Fund declined mid-teens during the first quarter, modestly underperforming the ICE BofA High Yield Index.
Underperformance was driven by all three asset class categories – bonds, loans and equities.

High yield bonds (64% of the portfolio) were negatively impacted by credit selection in the telecommunications,
gaming and health care sectors. Positive contributions from credit picks within the food and insurance sectors, along
with an underweight in the energy sector, were not enough to offset the negatives.

Leveraged loan investments (27% of the portfolio) were negatively impacted by credits in the oil & gas, retail and
technology sectors. Leveraged loans did not perform as well as we would have expected in the massive sell-off, driven
mainly by technical selling across the board from both outflows in the asset class and collateralized loan obligation
selling pressure.

While equity investments only make up 3.9% of the portfolio, the 25% decline in the allocation during the quarter
contributed 32 bps to underperformance.

Given the level of volatility, the Fund’s allocation across asset classes remained relatively steady, ending the quarter
with 64% bonds, 27% loans, 3.9% other and 5.4% cash. The Fund’s weighting by rating category is 13% BB, 44% B, and
30% CCC, as measured by Standard & Poor’s.

Outlook

Prior to March 2020, the words ‘social distancing’ and ‘bending the curve’ were phrases the vast majority of the
investing community had probably never heard, let alone given any validity to their occurrence. Today, they will be
ingrained into the psyche of the world for generations to come. A true black swan, COVID-19 came out of China with a
vengeance that no one (the markets, the health care community, the government) were prepared for. Once the gravity
of the virus was fully understood it was all but too late.

The volatility experienced in the month of March will go down in history with the CBOE Volatility Index (VIX) exploding
to a high of 82.69 on March 16, which eclipsed the previous high set back in 2008 when Lehman Brothers failed. Six
days later the Fed’s decision to “go all in” on saving the markets from another liquidity crisis has, for the time being,
put the bottom in for the markets. The fallout from shutting down the world’s economic way of life is still yet to be
determined.

We are looking for a meaningful increase in high-yield bond and loan defaults in the coming year due to a significantly
weaker economy stemming from the COVID-19 outbreak, as well as stress in the energy sector heightened by the
production conflict between Saudi Arabia and Russia. As always, our focus when evaluating investments is a
company’s business model and competitive advantages in order to weather a recession and perform throughout the
cycle.

That said, we're watching downgrades more so than defaults, especially as BBB rated companies fall to BB ratings.
For example, we believe many large and strong companies being downgraded into high yield are creating
opportunities for investors like us. New entrants into high yield are expected to surpass $250 billion over the next
twelve to eighteen months. Additionally, in hard hit areas like energy we should keep in mind that oil isn't going away.
Demand may fall, but there could be opportunities in producers who will make it through the recession.

Historically, black swan type events have been attractive buying opportunities for those with a long-term investment
horizon. When high-yield spreads blow out to levels they are at now, returns 1-year into the future have almost always
been positive, and if you go out beyond a year, they've always been positive. This is not to say there aren’t risks ahead.
How the economy re-opens and how quickly the world can “get back to work” remains to be seen, but with the blowout
in high-yield spreads to over 1,000 bps and today still sitting around 900bps, we think the risk-reward is on investors
side in high yield.

The opinions expressed are those of the Fund’s managers and are not meant as investment advice or to predict or project the future performance of any investment product. The opinions are current through March
31, 2020, are subject to change at any time based on market and other current conditions, and no forecasts can be guaranteed. This commentary is being provided as a general source of information and is not
intended as a recommendation to purchase, sell, or hold any specific security or to engage in any investment strategy. Investment decisions should always be made based on an investor’s specific objectives, financial
needs, risk tolerance and time horizon. Past performance is not a guarantee of future results.
The impact of COVID-19, and other infectious illness outbreaks that may arise in the future, could adversely affect the economies of many nations or the entire global economy, individual issuers and capital markets
in ways that cannot necessarily be foreseen. In addition, the impact of infectious illnesses in emerging market countries may be greater due to generally less established healthcare systems. Public health crises
caused by the COVID-19 outbreak may exacerbate other pre-existing political, social and economic risks in certain countries or globally. The duration of the COVID-19 outbreak and its effects cannot be determined
with certainty.

The ICE BofAML US High Yield Index tracks the performance of U.S. dollar denominated below investment grade corporate debt publicly issued in the U.S. domestic market. It is not possible to invest directly in an index
All information is based on Class I shares.
The CBOE Volatility Index is a calculation designed to produce a measure of constant, 30-day expected volatility of the U.S. stock market, derived from real-time, mid-quote prices of S&P 500® Index (SPXSM) call and
put options.Risk factors: The value of the Fund's shares will change, and you could lose money on your investment. An investment in the Fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. Fixed income securities are subject to interest rate risk and, as such, the net asset value of the Fund may fall as interest rates rise. Investing in below investment
grade securities may carry a greater risk of nonpayment of interest or principal than higher rated bonds. Loans (including loan assignments, loan participations and other loan instruments) carry other risks, including
the risk of insolvency of the lending bank or other intermediary. Loans may be unsecured or not fully collateralized may be subject to restrictions on resale and sometimes trade infrequently on the secondary market.
These and other risks are more fully described in the Fund's prospectus. Not all funds or fund classes may be offered at all broker/ dealers.

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and the U.S. Virgin Islands. Nothing in this website should be considered a solicitation to buy or an offer to sell such products
and services in any jurisdiction where the offer or solicitation would be unlawful under the laws of such jurisdiction.

IVY FUNDS® mutual funds and IVY VARIABLE INSURANCE PORTFOLIOS® are managed by Ivy Investment Management Company and are distributed by Ivy Distributors, Inc., InvestEd℠ Portfolios are managed by Ivy Investment Management Company and are distributed by Waddell & Reed, Inc. These financial products are offered by prospectus only. Waddell & Reed Financial, Inc. is the ultimate parent company of Ivy Distributors, Inc. and Waddell & Reed, Inc.

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Read it carefully before investing.

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